NEWDAY WEEKLY RECAP COMMENTARY, July 12, 2021
Markets: Another Record High for S&P 500
Source: Bloomberg
The SPX rose 40-bps this week, closing at a new record high.
Source: Bloomberg
The 10-Year Treasury fell nearly 18-bps mid-week, before bouncing off the 1.25% level which is important from a technical perspective. We think much of the recent move in yields has been in the term premium, likely driven by positioning, technical factors, Covid and Delta variant virus concerns, together with concerns about the potential for a slowdown in global growth and rising oil prices.
The Reflation Trade Maybe Over
Bond yields have likely been pushed lower due to the end of the reflation trade, which is being caused by fiscal stimulus running out, reduced odds of a large fiscal spending package being passed in the U.S., and M2 growth slowing. Assuming we are correct, the end of the reflation trade is a positive for longer-term real growth. As this will eliminate some of the distortions in the global economy.
The U.S. Economy: +2M Jobs Possible in July?
July payrolls could be as strong as +2 million – reflecting seasonal adjustment quirks, the downward trend in claims, the Job Openings and Labor Survey (JOLTS), and the gathering momentum of economic reopening’s. While it is still exceedingly early, given how beaten down sentiment on growth has gotten, U.S. July Non- Farms Payroll data could be particularly important in re-invigorating the economic growth narrative.
OPEC+: Remains a Risk to Growth
Source: Cornerstone Macro
Into year-end, it will matter more what fundamentals do, given that OPEC+, clearly want to put less oil into the market. Risk appetite has fallen off, as China’s growth pace is slowing down, and as the reflationary trade in developed markets has, some would argue, just about run its course. However, the strong demand recovery in the U.S. is becoming clearer in the data, reflecting a pick-up in summer driving and passengers returning to the skies.
Outlook: Beginning to Position for Change
- Given the macro-backdrop, The BEST days for Value investing are likely behind us.
- However, having a heavy growth tilt is premature by about 6-9 months. There are 6 months left in 2021, and a lot can and will change.
- Bottom line, we still prefer cyclicals relative to defense but see a better risk/reward developing in growth relative to value.